Nervous Banks Hold Back Europe's Revival Strategy

Among the piles of papers on one European diplomat's desk in Brussels is a memo with the words "growth" and "jobs" scrawled in blue ink, followed by a large question mark.

Among the piles of papers on one
European diplomat's desk in Brussels is a memo with the words
"growth" and "jobs" scrawled in blue ink, followed by a large
question mark.

"I think we're missing something," said the diplomat as he
sucked his pen. "There's a lot of talk about growth strategies,
but what about the banks? They are still not lending."

When EU finance ministers meet in Copenhagen on Friday,
banks - and their reluctance to lend - will be high on the
agenda as Europe looks to its economies at a time of austerity.

Blamed four years ago for triggering the global financial
crunch and Europe's ensuing debt crisis, banks are now being
criticised for being too cautious.

The European Central Bank points to a steady rise in the
cost of borrowing and says access to finance has become one of
the most pressing concerns of small business.

"Most small businesses feel almost hatred towards their
banks," said Mark Fielding, head of the Irish Small and Medium
Enterprises Association. "The level of loan approvals is
somewhere in the region of 50 percent. The smaller the business,
the less chance you have of getting money."

Europe's smaller firms are critical to the health of its
economy, generating some 80 percent of all jobs in the 17-nation
euro zone.

A record 17 million people are unemployed in the single
currency area - more than one tenth of the workforce - and the
bloc is sliding into its second recession in just three years,
likely pushing the jobless rate yet higher.

EU leaders have repeatedly attempted to craft a formula for
growth, most recently in a snowbound log cabin in the Arctic
Circle at the weekend. Without higher bank
lending, the effect of any strategy will be muted.

European companies tap banks for almost three-quarters of
their financing, compared to about a third for businesses in the
United States which rely more on capital markets.

European banks say they are willing to lend. But their
resources have has been depleted through the financial crisis
and they are under regulatory pressure to increase capital
buffers, meaning they have to tread carefully when making loans.